Ideal gas pricing mechanism should be linked to contracts executed: AK Balyan, Petronet chief

An ideal gas pricing mechanism would be one that was linked to actual contracts executed for India and that were running, AK Balyan, managing director and CEO, Petronet LNG Ltd said.

At present, 7.5 million tonnes a year was being sourced through a long-term contract with RasGas, Qatar, by Petronet with back-to-back sales arrangement with GAIL, Indian Oil Corporation and Bharat Petroleum Corporation.

Though the companies, did not disclose the formula adopted, the contract was priced with an oil-indexed formula (linked to Brent). The landed cost of Qatar gas worked out to around $11/mmBtu, and after adding transportation cost, marketing margins, taxes and local levies was available to consumer at about $12/mmBtu.

Besides the Qatar gas, Petronet had tied up 1.44 mtpa LNG from Exxon Mobil's Gorgon Venture in Australia, which is expected to come in 2016. Additionally, there were two contracts which GAIL (India) had signed.

Business Line quoted Balyan as saying regarding suggestions made by the Rangarajan panel on gas pricing, the formula could  always be debated but what was to be remembered was that each field would have different production costs, and if the gas was sour, it would need to be processed leading to additional costs.

He added, the price needed to be remunerative (to the producer) and to attract investments and also affordable to the consumer.

With the output from the largest fields declining and no big production set to come on stream, India's dependence on imported gas was inevitable.

Meanwhile, the pressure is mounting on the UK to protect itself by building more gas storage facilities, following recent events underlining the country's reliance on imports - and potential exposure to price spikes.

Matters came to a head when problems with the UK-Belgium Interconnector, one of the UK's main natural gas import pipelines, added to the effects of an unseasonably cold March in reducing UK's stores of gas, which fell to as low as 10 per cent of capacity.

With the unseasonable chill continuing, fears about gas rationing have been voiced in the headlines, drawing attention to a long-running problem.

The UK has been a net importer of natural gas for almost a decade, which accounted for around a third of the UK's energy needs - due to the dwindling of North Sea reserves.

However, the storage infrastructure, usually underground salt caverns or old offshore oil and gas fields, had failed to keep up with the changing energy situation.

The UK's history as a gas producer had left it with a much lower capacity to store gas many rivals in Europe, which did not enjoy major domestic gas reserves, and so had long relied on storage for supply security.

The existing data showed the UK had the capacity to store enough gas to meet its need for around 13 days, as against 99 for Germany and 122 for France, according to Monica Giulietti, an energy professor at Warwick Business School.